S&P 500 Slumps after Fed, GBP falls pre BOE

Equities

US stock markets experienced a notable downturn. The S&P 500 recorded its most significant daily loss since September 21, closing with a 1.61% decline. The Dow Jones Industrial Average also fell, dropping by 0.82% to 38,150.30, while the tech-heavy Nasdaq Composite saw a more pronounced decrease of 2.23%, ending at 15,164.01. This downturn came in the wake of the Federal Reserve's decision to maintain its key interest rate at 5.25%-5.50%, quashing earlier hopes for a rate cut as early as March.

The market's reaction was influenced by weaker performance in tech and tech-adjacent megacap stocks, particularly after Alphabet, the parent company of Google, reported disappointing advertising sales and announced increased capital spending aimed at enhancing its artificial intelligence capabilities. Alphabet's shares declined by 7.5% following this news. Microsoft Corp, another major player in the tech sector, forecasted rising costs for developing AI features, despite reporting earnings that surpassed analyst expectations. Its shares subsequently dropped by 2.7%.

In the banking sector, New York Community Bancorp saw its shares plummet by 37.7% after reporting an unexpected loss and a significant dividend cut. This marked the lowest level for the bank's shares in over two decades. The wider impact was seen across regional banks, with the KBW Regional Bank index sliding 6.0%.

On the UK front, the blue-chip FTSE 100 index also encountered a decline, falling by 0.5%. Notably, energy giants Shell and BP were among those contributing to this decrease, each recording a 1% drop in share price, in line with lower oil prices. Vodafone Group Plc, saw its shares decline by 2.1% after a proposal to merge its Italian operations with those of French telecom operator Iliad was rejected. GSK stood out as one of the top performers in the FTSE 100. The company's shares rose by 2% following the announcement of its fourth-quarter results, which exceeded market expectations.

Forex & Commodities

The US dollar has shown a notable rebound against other major currencies. This shift occurred following comments from Federal Reserve Chair Jerome Powell, who indicated that a rate cut in March is not currently a primary consideration for the US central bank. Consequently, the dollar strengthened against the euro and made some recovery against the yen. The dollar index, a measure of its value against a basket of other currencies, rose by 0.26% to 103.66, marking a 2.3% gain for the month, its best performance since September.

The euro, in contrast, has experienced a decline, falling 0.4% to $1.08005, reaching its lowest since mid-December. This downtrend is attributed to weaker economic outlooks, particularly in the euro zone, compared to the relatively resilient US economy. German inflation data, showing a slight easing in January, also influenced the euro's performance.

The British pound has seen a decrease as well, dropping 0.28% to $1.26630 ahead of the Bank of England's policy announcement. Investors are closely watching central banks, including the Bank of England and the Bank of Japan, for any shifts in monetary policy that could impact currency values.

Spot gold rose 0.3% to $2,043.80 per ounce, influenced by expectations of future US Federal Reserve rate cuts. However, the Fed's reluctance to commit to a rate cut as early as March has kept gold prices in check.

OPEC's oil output in January registered a significant drop, the largest monthly decrease since July. This decline is attributed to new voluntary production cuts by several OPEC members, in addition to disruptions in Libyan output. The Organisation of the Petroleum Exporting Countries pumped 26.33 million barrels per day, a reduction of 410,000 barrels per day from December. These developments are part of OPEC's strategy to support the oil market in the face of increasing output from non-OPEC countries like Brazil and the United States.